WEBVTT - The Nickel Squeeze Still Has City Reeling

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<v Speaker 1>Oh why. That was one of the worst days in

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<v Speaker 1>my professional career in terms of watching the behavior in exchange.

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<v Speaker 1>We have a meaningful position nickel at all. I'm not

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<v Speaker 1>sure we traded a single contract that day. I just

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<v Speaker 1>I don't know. It wasn't material the wats, but to

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<v Speaker 1>see an exchange close and then cancel hours worth of

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<v Speaker 1>activity was just utterly, just incomprehensively wrong. I'm France Lackwell

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<v Speaker 1>in the London studio, and I'm David Merritt, also in

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<v Speaker 1>the London studio. This is in the City, Bloomberg's podcast,

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<v Speaker 1>connecting you to the stories the heart of the City

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<v Speaker 1>of London, and this week, Dave, we revisit the nickel

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<v Speaker 1>squeeze back in March that threatened London's place at the

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<v Speaker 1>heart of the medal's trade. Now, for centuries, the London

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<v Speaker 1>Metal Exchange has been the home of global benchmark prices

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<v Speaker 1>for the world's key industrial medals. Right, but those chaotic

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<v Speaker 1>eighteen minutes back in March that sent nickel prices soaring

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<v Speaker 1>they have put the me's status as a key City

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<v Speaker 1>of London institution in doubt. There are now questions being

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<v Speaker 1>raised about its structure, its ownership, and in fact it's future.

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<v Speaker 1>There are lawsuits piling up and market experts forecasting a

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<v Speaker 1>mass exodus of ELAM members down the road. So joining

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<v Speaker 1>us in the studio today is Bloomberg's Jack Farci, who

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<v Speaker 1>covers energy and commodities. Hi Jack, Hello, So Jack, are

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<v Speaker 1>you able to give us, first of all a rough

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<v Speaker 1>history lesson right, so help us understand how it started.

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<v Speaker 1>It's one of the biggest exchanges in the world, certainly

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<v Speaker 1>when it comes to metals. The history of the London

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<v Speaker 1>Metal Exchange dates back to maybe the early nineteenth century

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<v Speaker 1>when they used to gather in coffee shops around here

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<v Speaker 1>in the city of London. They draw a circle in

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<v Speaker 1>the floor and sawdust and then they'd all gather around

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<v Speaker 1>the circle and start trading metals with one another. That

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<v Speaker 1>became more formalized in eight seventy seven when the London

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<v Speaker 1>Metal Exchange was established. It's still with us today, even

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<v Speaker 1>though the UK is around error in the global manufacturing

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<v Speaker 1>economy now, but the London Metal Exchange is still where

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<v Speaker 1>the world prices. And that was what I was going

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<v Speaker 1>to ask you that you know, we're no longer that

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<v Speaker 1>important industrial nation, So why does London continue to set

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<v Speaker 1>global prices for metals. London is is still a key

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<v Speaker 1>financial hub for the world and then the other parties history,

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<v Speaker 1>you know, I mean, there are lots of people who

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<v Speaker 1>would love to establish metals exchanges to be the benchmark

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<v Speaker 1>place for metals to be traded, But everyone's contracts have

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<v Speaker 1>enemy prices in them, and that's very, very hard to

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<v Speaker 1>change as long as you know, people are broadly happy

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<v Speaker 1>to continue using the system that they know, which is

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<v Speaker 1>the Enemy's pretty hard to rip up hundreds of years

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<v Speaker 1>of tradition and history and contracts, many of them that

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<v Speaker 1>last fifty and twenty years, and suddenly switched it all

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<v Speaker 1>over to a new way of pricing metals. Like some

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<v Speaker 1>of the history around it, I mean, it's pretty some

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<v Speaker 1>of the rules actually are pretty archaic. I think you

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<v Speaker 1>could drink in the pit until until three years ago.

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<v Speaker 1>Four years ago, well, the enemy only formally banned traders

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<v Speaker 1>from drinking during the working day. Yes, I mean, it's

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<v Speaker 1>it's one of the things that they weren't drinking, or

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<v Speaker 1>was it. I mean, well, I think it's possible that

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<v Speaker 1>people might have gone out to lunch and had a

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<v Speaker 1>few drinks and come back and traded in some cases,

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<v Speaker 1>probably not In most cases. Well, I know from from

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<v Speaker 1>some of the old timers that it used to be

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<v Speaker 1>the case that everyone would smoke in the ring and

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<v Speaker 1>there was an enormous ash tray in the middle of

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<v Speaker 1>the ring. That they'd all flick their butts into this

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<v Speaker 1>ash tray in the middle while shouting and making hand

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<v Speaker 1>signals and trading copper and tin. And I mean, that's

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<v Speaker 1>the thing, is that the image of the ring is

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<v Speaker 1>is so iconic, isn't it. There a crowd of shouting traders,

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<v Speaker 1>token incomprehensible, really um, and you just say maybe with

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<v Speaker 1>a cigy on as well. At the red seats or

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<v Speaker 1>green seats, red seats, red, red leather, a red leather bench,

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<v Speaker 1>which and so one of the arcake rules, which is

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<v Speaker 1>which they exist, you're not allowed to stand up. You've

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<v Speaker 1>got to keep not one foot grounded to the bench

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<v Speaker 1>at all times. And if you don't get fine, And

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<v Speaker 1>obviously they shut down the ring throughout COVID obviously standing

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<v Speaker 1>around and shouting each other not particularly COVID secure. But

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<v Speaker 1>now it's back, isn't it. And there's been a debate

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<v Speaker 1>about whether you even need this physical ring. But what's

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<v Speaker 1>so good about it. Why the traders still like to

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<v Speaker 1>use that as a way of transacting. Part of it

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<v Speaker 1>is because of the three month contract though instead of

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<v Speaker 1>having each month having a contract, the Eleemy has each

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<v Speaker 1>day has a contract, and then the benchmark price this

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<v Speaker 1>three month changes every single day. So today it's the

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<v Speaker 1>contract for three months time, but tomorrow it will be

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<v Speaker 1>one day later. And that creates this huge matrix of

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<v Speaker 1>contracts that are quite complicated, and all the banks and

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<v Speaker 1>brokers are always trading positions in between these different contracts.

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<v Speaker 1>They argue that's pretty hard to achieve on a computer screen,

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<v Speaker 1>and it's best done in the ring. Not everyone agrees,

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<v Speaker 1>by by any means, but this is a debate that

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<v Speaker 1>has been going on in the Eleemy for longer than

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<v Speaker 1>I've been covering it. Certainly, there's always one camp that says,

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<v Speaker 1>let's get rid of the Ring, and one camp that says, no,

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<v Speaker 1>it's necessary. And so far the argument has been made

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<v Speaker 1>and the Leemy has been listening to it, that is

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<v Speaker 1>that that the ring works and people like it, and

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<v Speaker 1>so it's it's still with us, how's it possible? And

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<v Speaker 1>they've had actually, you know, certain I guess events that

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<v Speaker 1>threatened the stages through the years, but there's not a

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<v Speaker 1>real viable rival to the ELEEMY. Well, the biggest rival

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<v Speaker 1>is the CME formerly comes in in the US Chicago. Yeah,

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<v Speaker 1>but they only have really a copper contract. So that's

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<v Speaker 1>a big rival for the ELEEMY and copper, but it's

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<v Speaker 1>a pretty North American US focused contract. They're certainly trying

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<v Speaker 1>to bring new contracts. They've got an aluminium contract now

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<v Speaker 1>that's global, but it's you know, a rounding era compared

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<v Speaker 1>to the enemy's aluminium contract. And the other big rival

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<v Speaker 1>is the Shanghai Future Exchange, which does a lot of

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<v Speaker 1>volume in metals and is one of the big trades.

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<v Speaker 1>Is people arbitraging between the price in Shanghai and the

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<v Speaker 1>price and the LEEMY. But that's on shore in China

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<v Speaker 1>and so it's not accessible to all global traders and

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<v Speaker 1>that's a real barrier to it becoming the global benchmark contract.

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<v Speaker 1>I think. So it brings us back to those famous

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<v Speaker 1>eighteen minutes in March where Nickel went crazy. That's been

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<v Speaker 1>a huge story today to watching the l M actually

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<v Speaker 1>stopped trading for for Nickel as its skyrocket over the

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<v Speaker 1>course of two days. I mean, that's unbelievable. Had that

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<v Speaker 1>massive surge in nickel prices that prompted halt and trading

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<v Speaker 1>on the ELM. I've covered nickel now for seven years.

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<v Speaker 1>I've just never seen anything like this. You had at

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<v Speaker 1>one point nicol rise by just today. You know, we

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<v Speaker 1>had a price that was in the range of ten

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<v Speaker 1>to twenty thousand dollars for a decade, and then suddenly,

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<v Speaker 1>in the space of one and a half days, it

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<v Speaker 1>went from just over a hundred thousand dollars. That's not

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<v Speaker 1>something in anyone's model, and it's and and and it

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<v Speaker 1>more or less broke the market. We had a situation

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<v Speaker 1>where the biggest company in the global nickel industry, company

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<v Speaker 1>called Singshan, also the biggest stainless steel makers, stainless steel

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<v Speaker 1>being one of the main uses for nickel, along with

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<v Speaker 1>batteries for electric vehicles. They had built up this big

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<v Speaker 1>short position in ellemy nickel. Essentially, they'd sold futures contracts

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<v Speaker 1>betting that prices would go down. They've done that over

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<v Speaker 1>the end of beginning twenty two, thinking that there's going

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<v Speaker 1>to be lots of production coming from Indonesia and that

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<v Speaker 1>would push prices down. Instead, car companies battery companies were

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<v Speaker 1>getting excited about the electric vehicle revolution, buying lots of nickel,

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<v Speaker 1>and and the world was worrying about Russia, and particularly

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<v Speaker 1>after Russia invaded Ukraine, there were lots of concerns that Russia,

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<v Speaker 1>that nickel coming out of Russia might be and commodities

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<v Speaker 1>in general coming out of Russia, but particularly nickel would

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<v Speaker 1>be disrupted. So Nuel's Nickel, Russia's big mining company, is

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<v Speaker 1>one of the biggest nickel producers in the world, and

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<v Speaker 1>crucially a really big supply of nickel metal, which is

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<v Speaker 1>the type that you can deliver on the enemy. And

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<v Speaker 1>so the price of nickel was picking up. At some

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<v Speaker 1>point on March seventh Monday, sing Shan stopped being able

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<v Speaker 1>to pay its margin to its brokers. So you know,

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<v Speaker 1>if you have a short position you've been against the

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<v Speaker 1>price and prices go up, your broker at some point

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<v Speaker 1>gives you a call and says, hey, if you want

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<v Speaker 1>to keep this position, you need to give us some

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<v Speaker 1>more money. At some point, sink Shan stopped being able

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<v Speaker 1>to find the more money. At that point things went

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<v Speaker 1>a bit crazy. The price on that day, March the

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<v Speaker 1>seventh Monday, went from about thirty thousand dollars to about

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<v Speaker 1>fifty tho dollars a ton. Until that point, Nichol had

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<v Speaker 1>traded for ten years in a range of ten twenty

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<v Speaker 1>dollars a ton. And then the market reopened overnight on

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<v Speaker 1>March the eighth, and prices really went crazy. So in

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<v Speaker 1>this eighteen minute period around six am on March the eighth,

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<v Speaker 1>prices went from just about fifty thous dollars all the

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<v Speaker 1>way up to a hundred and one thousand dollars. You mean,

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<v Speaker 1>how long have you been covering medals? Have you ever

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<v Speaker 1>seen over a decade? No, nothing like it. I don't

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<v Speaker 1>think I've seen anything like it in any commodity market.

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<v Speaker 1>To be honest with you, it was the enemy's auctions

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<v Speaker 1>after that huge spike, wasn't it that have really caused

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<v Speaker 1>the biggest concern. The price hit this record high of

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<v Speaker 1>a hundred and one thousand dollars, then came down to

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<v Speaker 1>about eighty thousand dollars at that point that this is

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<v Speaker 1>now about eight fifteen in the morning on March the eighth.

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<v Speaker 1>The Eleemy suspended trading and then crucially they canceled all

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<v Speaker 1>the trades that had happened on that day on mark

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<v Speaker 1>the eighth, about four billion of them re estimate and

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<v Speaker 1>so took the price back to where it had closed

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<v Speaker 1>the previous day, which is forty eight thousand dollars. The

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<v Speaker 1>effects of that was to say to all those people

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<v Speaker 1>who had short positions, which was you know, sing Shan

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<v Speaker 1>was the main one, and as a result sing Chan's

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<v Speaker 1>banks and brokers, but also lots of other companies involved

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<v Speaker 1>in the in the world of nickel trading, that you

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<v Speaker 1>wouldn't need to make your margin calls on the basis

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<v Speaker 1>of eighty thousand or hundred thousand dollar nickel, but you

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<v Speaker 1>could do it on the basis of forty eight thousand

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<v Speaker 1>dollar nickel. So it was a big bailout essentially for

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<v Speaker 1>anyone who had a short position, and consequently anyone who

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<v Speaker 1>had a long position was was pretty cross. Traders were

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<v Speaker 1>mental really because they could have made money, right and

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<v Speaker 1>they put a position to make money and then effectively

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<v Speaker 1>the element canceled it. Yeah, I mean there's been this

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<v Speaker 1>huge backlash, particularly I think from the kind of US

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<v Speaker 1>fund world. Some of them, I don't haven't even lost

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<v Speaker 1>a huge amount of money here, So I mean there

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<v Speaker 1>are lots of ways you could lose money, right, You

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<v Speaker 1>could have had a long position, been betting on nickel

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<v Speaker 1>price going up. You thought it was a hundred thousand

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<v Speaker 1>as maybe you sold some contracts on a hundred thousand

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<v Speaker 1>dollars and then the Eleemy tore up that sale, or

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<v Speaker 1>maybe you were arbitraging between two different prices, you know,

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<v Speaker 1>you had a trade going short nickel and long zinc

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<v Speaker 1>or something, and then the nickel price got torn up.

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<v Speaker 1>Was crazy. Actually in all of it was that the

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<v Speaker 1>Chinese nickel Taykoon, who was effectively almost bailed out, kept

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<v Speaker 1>on saying no, no no, I'm holding onto their short position, right, yeah, yeah,

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<v Speaker 1>I mean that has been the great, the great story,

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<v Speaker 1>and the thing that has infuriated some of these hedge

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<v Speaker 1>funds watching on from the sidelines is that, I mean,

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<v Speaker 1>the Eleemy says that they intervened in the market not

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<v Speaker 1>to bail out Singh Shan and its owners Shanganga, but

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<v Speaker 1>to bail out everyone else in the market who was

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<v Speaker 1>at risk of going including in particular, you know, some

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<v Speaker 1>of the smaller brokers who had clients who weren't paying

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<v Speaker 1>their margin and who would have gone bust if the

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<v Speaker 1>price had been eight thousand or a hundred thousand dollars,

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<v Speaker 1>and certainly if it had been higher. But this drama

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<v Speaker 1>that played out was in effect the enemy bailed out

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<v Speaker 1>Singshan and Shangwanda and and all of its banks led

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<v Speaker 1>by JP Morgan, but also a standard chart at BNP Pariba.

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<v Speaker 1>And and meanwhile, he has got out of it essentially.

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<v Speaker 1>So over the past three or four months, he's largely

0:11:06.600 --> 0:11:10.160
<v Speaker 1>got out of his short position at prices much lower

0:11:10.360 --> 0:11:13.400
<v Speaker 1>than the fifty where the market was stopped, and certainly

0:11:13.480 --> 0:11:14.960
<v Speaker 1>much lower than the eight or a hundred thousand where

0:11:14.960 --> 0:11:17.679
<v Speaker 1>the market went to before the trades were canceled, making

0:11:17.720 --> 0:11:20.439
<v Speaker 1>a little loss but not a very significant loss. Meanwhile,

0:11:20.840 --> 0:11:22.400
<v Speaker 1>you know, the likes of Elliott are saying that they've

0:11:22.400 --> 0:11:24.839
<v Speaker 1>lost half a billion dollars on because of the enemy's actions.

0:11:25.000 --> 0:11:27.080
<v Speaker 1>I remember actually speaking to a hedge fund at the time,

0:11:27.120 --> 0:11:28.520
<v Speaker 1>and we didn't put him on air because he was

0:11:28.559 --> 0:11:30.520
<v Speaker 1>I mean, there are a lot of exploits, There are

0:11:30.559 --> 0:11:33.240
<v Speaker 1>a lot of expletives that cannot be repeated on the podcast,

0:11:33.280 --> 0:11:35.280
<v Speaker 1>so real anger. Right. You had a great interview fund

0:11:35.280 --> 0:11:37.480
<v Speaker 1>seen with Ken Griffin where he said this was one

0:11:37.480 --> 0:11:39.120
<v Speaker 1>of the worst things he'd ever seen in his career.

0:11:40.120 --> 0:11:44.040
<v Speaker 1>You cannot do that in a market that is integrated

0:11:44.080 --> 0:11:46.000
<v Speaker 1>with other markets. You know, what have you traded in

0:11:46.040 --> 0:11:48.040
<v Speaker 1>the exchange that had a back back over the counter

0:11:48.120 --> 0:11:52.320
<v Speaker 1>kind of tract. What if you were a producer selling

0:11:52.320 --> 0:11:54.839
<v Speaker 1>your production forward and all of a sudden you find

0:11:54.840 --> 0:11:56.920
<v Speaker 1>that you didn't hedge. I mean, there's all kinds of

0:11:56.960 --> 0:12:01.880
<v Speaker 1>adverse consequences that come from exchange. Is changing the rules

0:12:01.880 --> 0:12:04.440
<v Speaker 1>of the road after the fat Yeah, because it puts

0:12:04.440 --> 0:12:06.800
<v Speaker 1>in question actually what they'll do next time around. There

0:12:06.840 --> 0:12:10.120
<v Speaker 1>was a great an article published by a fund called

0:12:10.120 --> 0:12:12.320
<v Speaker 1>trans Trend, which is one of the big algorithmic funds

0:12:12.440 --> 0:12:16.120
<v Speaker 1>trading metals, and they said this was effectively the enemy

0:12:16.160 --> 0:12:18.880
<v Speaker 1>seems to have manipulated the market price down and the

0:12:18.880 --> 0:12:21.000
<v Speaker 1>moment we realized what was happening, we felt we could

0:12:21.000 --> 0:12:23.680
<v Speaker 1>no longer entrust the enemy with our client's money. That's

0:12:23.720 --> 0:12:27.080
<v Speaker 1>how a lot of funds saw it, and that's why

0:12:27.160 --> 0:12:29.160
<v Speaker 1>it's such a big deal for the enemy. And now

0:12:29.200 --> 0:12:32.200
<v Speaker 1>we're seeing lawsuits as well. Right, so we've had Elliott,

0:12:32.320 --> 0:12:34.280
<v Speaker 1>you know, one of the biggest hedge funds in the world,

0:12:34.640 --> 0:12:38.200
<v Speaker 1>Paul Singers, Elliot Investment Management is seeking four and fifty

0:12:38.320 --> 0:12:42.360
<v Speaker 1>six million dollars in damages from the l follows and

0:12:42.400 --> 0:12:45.840
<v Speaker 1>also Jane Street, a big arbitrage have filed lawsuits or

0:12:45.840 --> 0:12:49.360
<v Speaker 1>have filed this this thing called judicial review, challenging the

0:12:49.480 --> 0:12:51.920
<v Speaker 1>leemy's actions and and seeking about half a billion dollars

0:12:51.920 --> 0:12:54.079
<v Speaker 1>from them. At the time, Jack, we actually thought that

0:12:54.200 --> 0:12:56.959
<v Speaker 1>the chief executive would go of the eleemy, and we

0:12:57.080 --> 0:12:59.080
<v Speaker 1>probably thought that a lot of the contracts were a

0:12:59.080 --> 0:13:02.000
<v Speaker 1>lot of the money making would move elsewhere. It hasn't

0:13:02.040 --> 0:13:04.680
<v Speaker 1>really well. The amount of trading on the enemy has

0:13:04.760 --> 0:13:09.240
<v Speaker 1>come down in nickel very significantly, so the nickel volumes

0:13:09.240 --> 0:13:12.000
<v Speaker 1>are down about a third since since all this blew up.

0:13:12.280 --> 0:13:14.679
<v Speaker 1>Open interest is also at the lowest in about ten years,

0:13:15.080 --> 0:13:18.320
<v Speaker 1>so the nickel contract is definitely wounded. The rest of

0:13:18.320 --> 0:13:20.920
<v Speaker 1>the eleemy has also seen a reduction, but not as

0:13:21.000 --> 0:13:23.520
<v Speaker 1>not a very dramatic reduction in volume and open interest.

0:13:23.880 --> 0:13:26.000
<v Speaker 1>I think the key issue is the one that I

0:13:26.000 --> 0:13:27.880
<v Speaker 1>said right at the beginning of this conversation. There aren't

0:13:27.920 --> 0:13:29.960
<v Speaker 1>very many alternatives. You know, if you want to trade

0:13:30.559 --> 0:13:34.839
<v Speaker 1>a nickel derivatives contract, there's a contracting Shanghai, but if

0:13:34.880 --> 0:13:38.360
<v Speaker 1>you're an international trader, that's not really accessible to you.

0:13:38.760 --> 0:13:40.200
<v Speaker 1>And so what do you do. You know, you can

0:13:40.240 --> 0:13:42.440
<v Speaker 1>have a fixed price. You can you can decide, you know,

0:13:42.440 --> 0:13:44.640
<v Speaker 1>if you're a nickel minor, you can sell it to

0:13:44.679 --> 0:13:46.720
<v Speaker 1>your customer at a fixed price and say, okay, let's

0:13:46.720 --> 0:13:50.160
<v Speaker 1>just call it dollars a tongue. But people don't like

0:13:50.160 --> 0:13:52.120
<v Speaker 1>doing that. They used to having a floating price and

0:13:52.160 --> 0:13:53.880
<v Speaker 1>hedging their risk and so and so. That's what the

0:13:53.920 --> 0:13:55.720
<v Speaker 1>enemy is for. But Jack, that's in the mediate term.

0:13:55.720 --> 0:13:57.679
<v Speaker 1>I mean, are some of these other platforms abroad, be

0:13:57.760 --> 0:14:01.439
<v Speaker 1>at Shanghai or New York or Chicago not building platforms

0:14:01.480 --> 0:14:03.480
<v Speaker 1>to rival the elemy after this? I mean, can you

0:14:03.480 --> 0:14:05.600
<v Speaker 1>just call it a huge mistake? I think they would

0:14:05.640 --> 0:14:09.080
<v Speaker 1>like to. But the reality of building building a contract

0:14:09.080 --> 0:14:12.600
<v Speaker 1>as an exchange that has that critical mass. The key

0:14:12.640 --> 0:14:15.640
<v Speaker 1>things that people care about when they're trading futures contracts

0:14:15.800 --> 0:14:18.760
<v Speaker 1>is liquidity, is the ability to get out of it.

0:14:19.240 --> 0:14:21.560
<v Speaker 1>I mean, yes, absolutely, is whether they trust the exchange

0:14:21.600 --> 0:14:23.960
<v Speaker 1>to honor their contract or not. But if there is

0:14:24.000 --> 0:14:27.120
<v Speaker 1>no alternative that has good liquidity and volume, there's certainly

0:14:27.120 --> 0:14:29.280
<v Speaker 1>lots of people around who would like a new contractor trade,

0:14:29.320 --> 0:14:31.680
<v Speaker 1>but it's not so straightforward to suddenly click your fingers

0:14:31.720 --> 0:14:33.840
<v Speaker 1>and make it happen. And and the boss, the CEO

0:14:33.960 --> 0:14:36.920
<v Speaker 1>of the Eleemy, Matthew Chamberlain, has been there about five years.

0:14:37.000 --> 0:14:39.480
<v Speaker 1>I mean, ultimately has he taken responsibility for all this

0:14:39.560 --> 0:14:41.600
<v Speaker 1>time or but he's still in his job. He has

0:14:41.640 --> 0:14:45.200
<v Speaker 1>and he is. We are absolutely mindful of the impact

0:14:45.240 --> 0:14:48.160
<v Speaker 1>that this had had on so many people, and we

0:14:48.240 --> 0:14:51.920
<v Speaker 1>need to make sure that it doesn't happen again. Um.

0:14:51.960 --> 0:14:54.240
<v Speaker 1>He was due to leave, in fact, he announced his

0:14:54.280 --> 0:14:56.720
<v Speaker 1>departure in January this year before all of this happened.

0:14:57.040 --> 0:14:58.800
<v Speaker 1>He was due to leave at the end of April,

0:14:59.240 --> 0:15:02.240
<v Speaker 1>but instead the eleemy's owners, which is Hong Kong Exchange

0:15:02.240 --> 0:15:04.720
<v Speaker 1>and Clearing, Hong Kong Exchange, asked him to stay on.

0:15:04.760 --> 0:15:08.200
<v Speaker 1>And he's now staying on indefinitely at CEO in order

0:15:08.240 --> 0:15:11.440
<v Speaker 1>to the mess. And in fact, rather than rather than leaving,

0:15:11.440 --> 0:15:14.120
<v Speaker 1>he's actually he's actually renewed his contract and he's staying

0:15:14.120 --> 0:15:17.760
<v Speaker 1>on and he's in he's disputing these these lawsuits against him.

0:15:17.760 --> 0:15:21.600
<v Speaker 1>I think the Hong Kong Exchanges and Clearing have said

0:15:21.600 --> 0:15:23.600
<v Speaker 1>in a state with the enemy, management is of the

0:15:23.720 --> 0:15:26.480
<v Speaker 1>view that the claims are without merit and that the

0:15:26.560 --> 0:15:29.920
<v Speaker 1>enemy is going to contest these vigorously. What chances have

0:15:30.000 --> 0:15:32.920
<v Speaker 1>they got of winning? Well, it's an interesting one. The

0:15:33.040 --> 0:15:36.440
<v Speaker 1>Leemy is a kind of a slightly weird, weird legal

0:15:36.680 --> 0:15:39.960
<v Speaker 1>legal situation where the Eleemy is considered legally as as

0:15:39.960 --> 0:15:42.360
<v Speaker 1>an arm of the UK government because it performs this

0:15:42.400 --> 0:15:45.440
<v Speaker 1>regulatory function over the market. And so the way to

0:15:45.480 --> 0:15:47.880
<v Speaker 1>sue the Leemy, at least that people have done in

0:15:47.920 --> 0:15:50.880
<v Speaker 1>the past and had success in the limited instances where

0:15:50.880 --> 0:15:54.280
<v Speaker 1>that's happened, is this process called judicial review. And really

0:15:54.280 --> 0:15:57.560
<v Speaker 1>that focuses on how the Eleemy took the decisions, not

0:15:57.640 --> 0:15:59.560
<v Speaker 1>really the rights and wrongs of what the decision was,

0:16:00.040 --> 0:16:02.720
<v Speaker 1>but whether they followed the proper process according to their

0:16:02.960 --> 0:16:06.320
<v Speaker 1>procedures when they took the decisions. So we'll see the

0:16:06.360 --> 0:16:08.640
<v Speaker 1>Eleemy says, of course that they did follow the proper process.

0:16:08.880 --> 0:16:11.440
<v Speaker 1>Their rule book allows them to do pretty much whatever

0:16:11.480 --> 0:16:13.960
<v Speaker 1>they like. If the Eleemy considers that the market is

0:16:14.000 --> 0:16:16.800
<v Speaker 1>disorderly or is at risk of becoming disorderly or anything

0:16:16.840 --> 0:16:18.920
<v Speaker 1>like that, they can take whatever actions they think are

0:16:18.960 --> 0:16:23.200
<v Speaker 1>necessary in order to resolve the situation. So we'll see

0:16:23.280 --> 0:16:25.360
<v Speaker 1>what comes out when when if we get to the

0:16:25.360 --> 0:16:28.720
<v Speaker 1>point where we start seeing how the enemy's decision making process,

0:16:29.080 --> 0:16:31.040
<v Speaker 1>you know, in the minut c I of it, the

0:16:31.080 --> 0:16:34.160
<v Speaker 1>meetings of the special committees and boards and the minutes

0:16:34.160 --> 0:16:37.000
<v Speaker 1>of those what went into their decision making process. But

0:16:37.040 --> 0:16:38.680
<v Speaker 1>I think that the assumption has got to be that

0:16:39.040 --> 0:16:42.640
<v Speaker 1>they followed their procedures. Maybe not. You know, Russel took

0:16:42.640 --> 0:16:45.400
<v Speaker 1>them to judicial review in two thousand and fourteen. I

0:16:45.440 --> 0:16:48.520
<v Speaker 1>think and and was initially successful. So it's possible, but

0:16:48.720 --> 0:16:50.760
<v Speaker 1>I think it's a long shot. Is their long lasting

0:16:50.800 --> 0:16:53.480
<v Speaker 1>and irreversible damage to the reputation both of the enemy

0:16:53.480 --> 0:16:55.160
<v Speaker 1>and their prospects, but also for the city of London

0:16:55.200 --> 0:16:57.880
<v Speaker 1>as a whole, Yes, I think there is. I mean,

0:16:57.880 --> 0:17:00.960
<v Speaker 1>I think the short answer is the Eleemy. You know,

0:17:01.000 --> 0:17:03.040
<v Speaker 1>for for for as long as I've been covering it,

0:17:03.520 --> 0:17:06.040
<v Speaker 1>and certainly since it was brought by the Hong Kong Exchange,

0:17:06.080 --> 0:17:10.680
<v Speaker 1>in has been trying to woo these financial investors, particularly

0:17:11.000 --> 0:17:14.160
<v Speaker 1>you know, big US funds, and persuade them to join

0:17:15.280 --> 0:17:18.120
<v Speaker 1>the physical market participants, the likes of Singshan, the big

0:17:18.160 --> 0:17:22.240
<v Speaker 1>mining companies, the traders, the manufacturers in trading on the

0:17:22.240 --> 0:17:24.960
<v Speaker 1>eleemy to boost volumes, to make the eleemy more profitable

0:17:25.000 --> 0:17:27.120
<v Speaker 1>as a as a business that's going to be an

0:17:27.119 --> 0:17:30.160
<v Speaker 1>extremely hard argument to win now that they're also furious

0:17:30.160 --> 0:17:32.199
<v Speaker 1>with the ELEEMY, and it's gonna be very hard to

0:17:32.200 --> 0:17:35.560
<v Speaker 1>persuade them to trust the ELEEMY again with its current

0:17:35.800 --> 0:17:38.440
<v Speaker 1>ownership and its current governance structure. I mean, and you've seen,

0:17:38.760 --> 0:17:40.960
<v Speaker 1>you know, people like the I M F No Less

0:17:41.160 --> 0:17:43.800
<v Speaker 1>have been calling for reform of the eleemy's government structure.

0:17:43.840 --> 0:17:46.119
<v Speaker 1>I think it's a big issue. I don't see an

0:17:46.119 --> 0:17:47.760
<v Speaker 1>easy way out of it. The ELEEMY has put in

0:17:47.800 --> 0:17:50.000
<v Speaker 1>place already a number of reforms to try and prevent

0:17:50.040 --> 0:17:53.360
<v Speaker 1>something like this happening again. But the key question as

0:17:53.359 --> 0:17:56.280
<v Speaker 1>it relates to how the ELEEMY got itself into this

0:17:56.320 --> 0:17:59.440
<v Speaker 1>situation and the lack of trust in the people making

0:17:59.440 --> 0:18:02.160
<v Speaker 1>the decision, which now all of these hedge funds feel,

0:18:02.560 --> 0:18:05.760
<v Speaker 1>that's hard to resolve without without a meaningful change, without

0:18:05.800 --> 0:18:09.360
<v Speaker 1>probably changing the whole government structure and pay possibly the ownership,

0:18:09.640 --> 0:18:12.120
<v Speaker 1>which so far, at least, people haven't been talking about

0:18:12.119 --> 0:18:15.520
<v Speaker 1>Hong Kong Exchanges hasn't been hasn't hasn't suggested that they're

0:18:15.680 --> 0:18:17.840
<v Speaker 1>they're interested or willing to sell Jack. How do you

0:18:17.840 --> 0:18:22.439
<v Speaker 1>tell the professionals with the wannabes London Metal Exchange, London

0:18:22.600 --> 0:18:26.480
<v Speaker 1>Metals Exchange. That's a no no, it's the London Metal Exchange.

0:18:26.520 --> 0:18:28.920
<v Speaker 1>Anyone who pulls it the London Medals Exchange does not

0:18:29.040 --> 0:18:31.480
<v Speaker 1>know the metals markets. Literally, Jack Jack said, if you

0:18:31.520 --> 0:18:35.720
<v Speaker 1>call it metals, I will walk out. Thank you so much,

0:18:35.880 --> 0:18:45.680
<v Speaker 1>Thank you Jack. I'm David Merritt and I'm Francine black One.

0:18:45.800 --> 0:18:48.200
<v Speaker 1>That's it for this week's episode of In the City.

0:18:48.560 --> 0:18:50.480
<v Speaker 1>We will be back next week and in the meantime.

0:18:50.520 --> 0:18:52.480
<v Speaker 1>If you like the show, please rate it and check

0:18:52.480 --> 0:18:55.280
<v Speaker 1>out the Bloomberg UK website for more news and use

0:18:55.560 --> 0:18:58.840
<v Speaker 1>special thanks for our guest Jack Fergie. This episode was

0:18:58.880 --> 0:19:12.600
<v Speaker 1>produced by Summerside and said her say yeh